New Airline To Use Dulles As Its Hub

Presidential Airways, a fledgling regional airline that plans to use Dulles Airport as its hub, yesterday announced it will launch its low-fare full-service flights to five cities beginning Oct. 10.

"The Washington area is a major air transportation market which is not yet served by a major airline on a hub and spoke basis," said Harold J. Pareti, Presidential's chief executive officer and formerly a top executive and People Express airline. "So the status of our route system, I think, will prove to be very successful. . . . we're positioning Washington as an alternative hub to Newark in the north and Atlanta in the south."

Presidential, however, is not the only airline that is tapping Dulles as a hub. New York Air is expanding its Dulles presence and this week nearly doubled its flights from 17 to 33 daily.

Presidential, initially capitalized at $30 million, will inaugurate its unrestricted fare service to Boston, Cincinnati, Indianapolis, Miami and Hartford, Conn., with a schedule of more than 20 flights a day.

By the summer of 1986, the airline hopes to offer 50 daily non-stops from Dulles to 10 cities in the Ohio Valley, New England and Florida regions.

The airline is counting on a low-fare strategy to spark air travel demand in the cities it has targeted as underserved by existing air carriers. In many respects, it is emulating the People Express approach to airline service with the use of an underutilized hub, low fares and the targeting of underserved cities.

Typical fares from Dulles to Boston range from $39 off-peak to $99 first class; Dulles to Miami peak flights would cost $99; while flights through Dulles from Boston to Cincinnati would cost $99 peak coach.

Asserting that posted fares were anywhere between one-third to two-thirds lower than comparable flights, Pareti stressed that Presidential would offer advanced seat assignments, baggage check-in and complimentary onboard snacks and beverages, saying "This is not going to be a no-frills product."

"Presidential represents a new generation of the new entrant airlines that have been launched since deregulation," said Timothy P. Pettee, a senior investment analyst with L. F. Rothschild. "They're looking at the mistakes of the entrants of the past five years and correcting for them in their strategies.

"By and large, the key is the revenue side; the airline industry today is a marketing game pure and simple. It's not that different from selling soap."

Presidential, which says it is investing $5.7 million to develop a terminal at Dulles, will initially fly four Boeing 737 planes and has three more on order. The company says that it needs at least a 49 percent passenger load to break even. Pareti asserted that the company would achieve an annualized $90 million during its first full year of operation.

"Given historical patterns, Presidential needs to stimulate traffic in order to be successful," said L. F. Rothschild's Pettee. "If the markets do not develop as even remotely expected, then Presidential would obviously have some problems."

Pareti stressed one major difference between Presidential [and] People Express would be an effort by the new airline to capture and maintain a significant share of the business passenger market. He pointed out that, unlike People, Presidential would be a part of an existing travel reservation system for easy access to corporate flyers.

Pettee and other airline analysts assert that the business market is price sensitive and that new low fares could spur new business travel between Washington and such markets as Indianapolis or Cincinnati.

"Historically, you would discover that the development of a hub is accelerated as additional airlines enter it and introduce new service," said Bruce D. Miller, New York Air's vice president of marketing. "If Presidential helps make Dulles a more significant factor, New York Air can't help but benefit."

Miller points out, however, that New York Air and Presidential are carving out different markets to serve through the Dulles hub.

"We would be a parallel system with New York Air," said Pareti. "We have different traffic pools flowing through Washington to different destinations."